{"id":256217,"date":"2026-09-15T11:00:45","date_gmt":"2026-09-15T15:00:45","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=256217"},"modified":"2026-09-15T11:41:54","modified_gmt":"2026-09-15T15:41:54","slug":"market-drawdown-vs-downturn-watch-the-fundamentals","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/market-drawdown-vs-downturn-watch-the-fundamentals\/","title":{"rendered":"Market drawdown vs. downturn: Watch the fundamentals"},"content":{"rendered":"\n<h2 id=\"h-key-takeaways\" class=\"wp-block-heading\">Key takeaways<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Market drawdowns have often reflected policy uncertainty, but they don\u2019t necessarily signal the end of a market cycle. A meaningful downturn typically requires deteriorating fundamentals.<\/li>\n\n\n\n<li>Despite shifting interest rate expectations, tight credit spreads and strength in small-cap and equal-weight indexes support our view that the structural bull market has remained intact.<\/li>\n\n\n\n<li>Risks to watch include earnings disappointments, weaker policy guidance, and a slowdown in AI spending. For now, those warning signs haven\u2019t appeared to materialize.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">I\u2019m often asked when the next market drawdown will occur. An easy answer is soon enough. After all, 5% to 10% corrections happen in most years.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#1\">1<\/a><\/sup>&nbsp;But that\u2019s too easy. Market drawdowns have rarely come out of nowhere. They\u2019ve generally been the result of policy uncertainty.<\/p>\n\n\n\n<h2 id=\"h-policy-uncertainty-has-triggered-drawdowns\" class=\"wp-block-heading\"><strong>Policy uncertainty has triggered drawdowns<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Consider the last two years. This elongated market advance was briefly interrupted by tariffs in 2025 and the war with Iran in 2026.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#2\">2<\/a><\/sup>&nbsp;While the headlines were different, the source of the uncertainty was ultimately the same. Investors were left to assess the implications for inflation and interest rates. Would tariffs prove inflationary? Would higher oil prices keep inflation elevated? Would the&nbsp;<a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/what-is-federal-reserve-inflation.html\">Federal Reserve<\/a>&nbsp;(Fed) need to maintain a more restrictive policy stance than previously expected?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In both cases, markets responded by repricing policy expectations.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#3\">3<\/a><\/sup>&nbsp;Markets declined.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#4\">4<\/a><\/sup>&nbsp;Yet those drawdowns proved short-lived as the economy&nbsp;<a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/why-investors-may-want-to-ignore-some-market-headlines.html\">remained resilient<\/a>&nbsp;and corporate earnings remained strong. The feared deterioration in fundamentals failed to materialize.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Today, investors are once again confronting the same questions. The persistence of the conflict in Iran and renewed trade tensions have once again led markets to reassess the policy outlook. Long-term interest rates have climbed as investors grappled with a stronger nominal growth environment and the possibility that inflation may prove more persistent than expected.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#5\">5<\/a><\/sup>&nbsp;This occurred despite efforts by the&nbsp;<a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/new-treasury-buyback-debt-reckoning.html\">US Treasury<\/a>&nbsp;to mitigate the rise in the 10-year Treasury yield.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#6\">6<\/a><\/sup>&nbsp;The market has increasingly confronted the possibility that the Fed may ultimately need to raise interest rates and that the economy could slow as a result.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Against that backdrop, some market weakness shouldn\u2019t be surprising. Drawdowns have generally occurred during periods of uncertainty about the path of policy.<\/p>\n\n\n\n<h2 id=\"h-don-t-confuse-a-drawdown-with-a-downturn\" class=\"wp-block-heading\"><strong>Don\u2019t confuse a drawdown with a downturn<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">What\u2019s important, however, isn\u2019t to confuse a drawdown with the end of a market cycle.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Although markets have gone from pricing in roughly three rate cuts at the start of the year to contemplating two or three rate hikes, credit spreads have remained historically tight.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#7\">7<\/a><\/sup>&nbsp;The small-cap stock and equal-weight S&amp;P 500 indexes have remained near all-time highs.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#8\">8<\/a><\/sup>&nbsp;That has typically not been a characteristic of the end of a market cycle, even if the so-called broadening trade took a breather as higher rates and energy prices weighed on economic growth.<\/p>\n\n\n\n<h2 id=\"h-what-has-the-potential-to-end-the-structural-bull-market\" class=\"wp-block-heading\"><strong>What has the potential to end the structural bull market?<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">In my view, the end of this structural&nbsp;<a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/bears-beware-case-for-bull-market-momentum.html\">bull market<\/a>&nbsp;may more likely come from a break in the&nbsp;<a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/ai-earnings-permabears-markets-oil-growth-bears.html\">artificial intelligence<\/a>&nbsp;(AI) investment cycle than from a period of Fed tightening. Inflation expectations remained reasonably contained,<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#9\">9<\/a><\/sup>&nbsp;and the private sector hasn\u2019t been particularly over-levered.<sup><a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html#10\">10<\/a><\/sup>&nbsp;Instead, I\u2019d be watching for earnings disappointments, downward analyst revisions, deteriorating forward guidance, hyperscalers pulling back on investment spending, or signs that investment grade bond markets are struggling to absorb the issuance required to finance the AI buildout.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">None of that appears to have materially happened.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Could markets experience a drawdown? Absolutely. Policy uncertainty has often created them. But drawdowns and bear markets aren\u2019t the same thing. A drawdown has typically reflected uncertainty about what policymakers may do next. A bear market requires a meaningful deterioration in fundamentals.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For now, to me this looks much more like the former than the latter.<\/p>\n\n\n\n<h3 id=\"h-what-to-watch-this-week\" class=\"wp-block-heading\">What to watch this week<\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><th class=\"has-text-align-left\" data-align=\"left\"><strong>Date<\/strong><\/th><th class=\"has-text-align-left\" data-align=\"left\"><strong>Region<\/strong><\/th><th class=\"has-text-align-left\" data-align=\"left\"><strong>Event<\/strong><\/th><th class=\"has-text-align-left\" data-align=\"left\"><strong>Why it matters<\/strong><\/th><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Sept. 15<\/td><td class=\"has-text-align-left\" data-align=\"left\">US<\/td><td class=\"has-text-align-left\" data-align=\"left\">Empire State Manufacturing Survey (Sept.)<\/td><td class=\"has-text-align-left\" data-align=\"left\">Early read on factory activity and price pressures<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">&nbsp;<\/td><td class=\"has-text-align-left\" data-align=\"left\">China<\/td><td class=\"has-text-align-left\" data-align=\"left\">Industrial production<br>Retail sales<br>Fixed asset investment (Aug.)<\/td><td class=\"has-text-align-left\" data-align=\"left\">Momentum in manufacturing, consumer demand, and investment<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">&nbsp;<\/td><td class=\"has-text-align-left\" data-align=\"left\">UK<\/td><td class=\"has-text-align-left\" data-align=\"left\">Employment report (July\/Aug.)<\/td><td class=\"has-text-align-left\" data-align=\"left\">Labor demand, unemployment, and wage pressures<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Sept. 16<\/td><td class=\"has-text-align-left\" data-align=\"left\">US<\/td><td class=\"has-text-align-left\" data-align=\"left\">Retail sales (Aug.)<br>Federal Reserve policy decision, economic projections, and press conference<\/td><td class=\"has-text-align-left\" data-align=\"left\">Consumer demand and policymakers\u2019 outlook for inflation, growth, and interest rates<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">&nbsp;<\/td><td class=\"has-text-align-left\" data-align=\"left\">UK<\/td><td class=\"has-text-align-left\" data-align=\"left\">Consumer Price Index (CPI) (Aug.)<\/td><td class=\"has-text-align-left\" data-align=\"left\">Inflation trends before the Bank of England policy decision<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Sept. 17<\/td><td class=\"has-text-align-left\" data-align=\"left\">US<\/td><td class=\"has-text-align-left\" data-align=\"left\">Housing starts and building permits (Aug.)<br>Initial jobless claims<\/td><td class=\"has-text-align-left\" data-align=\"left\">Housing activity and labor market conditions<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">&nbsp;<\/td><td class=\"has-text-align-left\" data-align=\"left\">UK<\/td><td class=\"has-text-align-left\" data-align=\"left\">Bank of England policy decision and meeting minutes<\/td><td class=\"has-text-align-left\" data-align=\"left\">Policymakers\u2019 assessment of inflation, growth, and the interest-rate outlook<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">Sept. 18<\/td><td class=\"has-text-align-left\" data-align=\"left\">US<\/td><td class=\"has-text-align-left\" data-align=\"left\">Industrial production and capacity utilization (Aug.)<\/td><td class=\"has-text-align-left\" data-align=\"left\">Factory output and use of productive capacity<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">&nbsp;<\/td><td class=\"has-text-align-left\" data-align=\"left\">Japan<\/td><td class=\"has-text-align-left\" data-align=\"left\">Bank of Japan policy decision<\/td><td class=\"has-text-align-left\" data-align=\"left\">Policy stance amid inflation, wage growth, and currency pressures<\/td><\/tr><tr><td class=\"has-text-align-left\" data-align=\"left\">&nbsp;<\/td><td class=\"has-text-align-left\" data-align=\"left\">UK<\/td><td class=\"has-text-align-left\" data-align=\"left\">Retail sales (Aug.)<\/td><td class=\"has-text-align-left\" data-align=\"left\">Household spending and consumer demand<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">&#8212;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Originally Posted September 15, 2026 &#8211; <a href=\"https:\/\/www.invesco.com\/us\/en\/insights\/market-drawdown-vs-downturn-watch-fundamentals.html\">Market drawdown vs. downturn: Watch the fundamentals<\/a><\/p>\n\n\n\n<h2 id=\"h-footnotes\" class=\"wp-block-heading\">Footnotes<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">10Source: Federal Reserve Bank of St. Louis, June 2026, based on the liabilities of non-financial US corporate businesses.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">1Source: Bloomberg L.P., Sept. 2026, based on the annual peak-to-trough declines in the S&amp;P 500 Index.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">2Source: Bloomberg L.P., Sept. 10, 2026, based on the returns of the S&amp;P 500 Index since April 2020. The S&amp;P 500 fell 18.75% from its Feb. 19, 2025, high to its April 8, 2025, low. In 2026, the S&amp;P 500 declined about 9.00% from its Feb. 2026 high.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">3Source: Bloomberg L.P., Sept. 10, 2026, based on federal funds implied rates.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">4Source: Bloomberg L.P., Sept. 10, 2026, based on the returns of the S&amp;P 500 Index since April 2020. The S&amp;P 500 fell 18.75% from its Feb. 19, 2025, high to its April 8, 2025, low. In 2026, the S&amp;P 500 declined about 9.00% from its Feb. 2026 high.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">5Source: Bloomberg L.P., Sept. 10, 2026, based on the 10-year US Treasury rate.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">6Source: CNBC, \u201c10-year Treasury yield touches highest since 2023 despite Bessent\u2019s $6 billion bond buyback plan,\u201d Sept. 9, 2026.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">7Source: Bloomberg L.P., Sept. 10, 2026, based on federal funds implied rates and the option-adjusted spread of the Bloomberg US Corporate Bond Index.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">8Source: Bloomberg L.P., Sept. 10, 2026, based on the Russell 2000 Index and the S&amp;P 500 Equal Weight Index.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">9Source: Bloomberg L.P., Sept. 10, 2026, based on the 5-year US Treasury inflation breakeven. Breakeven inflation is the difference in yield between a nominal Treasury security and a Treasury Inflation-Protected Security of the same maturity.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Market drawdowns have often reflected policy uncertainty, but they don\u2019t necessarily signal the end of a market cycle. A meaningful downturn typically requires deteriorating fundamentals.<\/p>\n","protected":false},"author":177,"featured_media":198434,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[18,6,8,9,26,3],"tags":[],"contributors-categories":[13606],"class_list":["post-256217","post","type-post","status-publish","format-standard","has-post-thumbnail","category-macro","category-north-america","category-region","category-securities","category-text-articles","category-traders-insight","contributors-categories-invesco-us"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v28.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Market drawdown vs. downturn: Watch the fundamentals<\/title>\n<meta name=\"description\" content=\"Market drawdowns have often reflected policy uncertainty, but they don\u2019t necessarily signal the end of a market cycle. 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